Start-ups are in high demand these days. The much publicized and celebrated exits of high profile companies, including Facebook, Instagram, and LinkedIn, has created a lot of attention and hype for technology start-up companies.
Moreover, this perceived high success rate is not limited to Silicon Valley. It’s also happening in the NYC area, Israel, and other high-tech hotbeds around the world. It seems that start-ups are all the rage again.
That’s why many graduates and young professionals are opting to join start-up companies instead of established, successful companies. But is that really a smart career move for everyone?
As someone who has worked at large global corporations, as well as startups (in different stages of their life-cycle), and is now an entrepreneur and a founder of a new start-up, I believe that I have a unique perspective on this topic.
Some Facts About Startups
First, allow me to correct some misconceptions about start-up companies.
What’s a start-up? I like Steve Blank’s definition of a start-up company: “a startup is an organization formed to search for a repeatable and scalable business model.” This means that a start-up company is by design a very dynamic and unstable organization. It may change its business model, product, and strategy several times before it finally finds the right one, or runs out of money.
Start-up success rates. This is a favorite of mine. While statistics are weak on startup success rates, the worst one I’ve seen suggests that 2 in 1000 venture-backed startups will ever achieve $100-million or more in valuation. In fact, according to the Startup Genome Report, eleven out of twelve start-ups fail. And according to Shikhar Ghosh, a senior lecturer at Harvard Business School, if failure means liquidating all assets, with investors losing most or all the money they put into the company, then the failure rate for start-ups is 30 to 40 percent. If failure refers to failing to see the projected return on investment, then the failure rate is 70 to 80 percent. Moreover, according to research done by the University of Tennessee, 25% of start-up companies fail within their first year.
You get the picture; the chance of experiencing significant financial success in a start-up company (i.e. becoming rich) is low, very low. Moreover, even in those few cases that start-up companies do achieve a successful exit, the non-founding employees do not become millionaires. At best, they can get a very nice sum of money. They would still need to go to work the next day.
My Suggested Criteria for Making Your Decision
Based on these sobering facts, I can offer some advice to those of you contemplating whether or not to join a start-up.
Assume the start-up will fail. That your stock options and equity will be worthless. Does it still look like a great opportunity for you? If your primary reason for joining a start-up is to get rich fast—don’t do it. It will only lead you to disappointment, frustration, and loss of valuable time.
Know yourself. Do you perform your best in a stable, structured environment, or do you prefer a less stable, more dynamic one? If you are more of the first type, then perhaps a start-up company is not a good fit.
Risk and uncertainty factor. Typically, start-ups are low on cash. They have enough money in the bank for a few months of operations, until their next round of funding. Your next paycheck is not guaranteed. This results in a high level of risk and uncertainty. Depending on what’s happening in your life at this time, your marital status, financial stability, etc., you might not be willing or able to introduce such high risk and uncertainty into your life.
If you still want to join that start-up, let’s consider the other aspects of this job opportunity:
The Company: Do you believe in the company and its purpose? Would you be proud to be part of it?
The Position: Does the offered position provide you the opportunity to further develop and grow professionally/personally? Does it lead you towards your career goal? Would you have fun/excitement doing it?
The People: Do you feel good about the people you’re going to work with? Would you be able to build constructive and positive working relationships with them? Does the company culture (environment, style, values, etc.) suit you? Would you enjoy working there?
If your answers to the above are positive, then I recommend that you move forward. You can now consider other important aspects, such as salary, benefits, etc.
Please don’t get me wrong, I’m not suggesting that start-up companies don’t present great career opportunities. However, they are not the path to becoming rich and famous fast. So, if you are considering to join one, make sure you’re doing it for the right reasons. And, that your decision is based on correct data, the right criteria, and realistic expectations.